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Operator: Good afternoon, everyone, and welcome to the Anworth Fourth Quarter 2020 Earnings Conference Call. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. John Hillman, Anworth's Director of Investor Relations, who will make a brief introductory statement. Sir, please go ahead.
John Hillman: Thank you, Jamie. Statements made on this earnings call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. And we hereby claim the protection of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to any such forward-looking statements.
Joe McAdams: Thank you, John, and thank you for joining us on Anworth's Fourth Quarter 2020 Earnings Call. With me today on the call are Bistra Pashamova and Brett Roth, both Senior Vice Presidents and Portfolio Managers; and Chuck Siegel, Anworth's Chief Financial Officer. But, first, as I'm sure you're all aware, and to reiterate what John Hillman just discussed. In December of 2020, Anworth entered into a merger agreement with Ready Capital Corp. There's an upcoming special meeting of the Anworth shareholders to vote on this proposed merger, and all Anworth shareholders should have received a proxy statement by now. If anyone is dialed in today, looking to ask questions or get information regarding the merger proposal or the special meeting, I would refer you to the proxy as well as other publicly available documents we referenced in our earnings release. For today's earnings call, the body of our presentation and the Q&A session will be focused on Anworth's fourth quarter 2020 results. If you have any issues receiving or accessing the publicly available documents pertaining to the proposed merger or any questions at all, please don't hesitate to reach out to us at anworth.com via our shareholder relations number or to our proxy solicitor. With that said, we'll now turn to Anworth's financial results. During the fourth quarter, Anworth posted an increase in book value per common share as well as a quarter-over-quarter increase in core earnings. Core earnings were $4.7 million or $0.05 per common share during the fourth quarter, up from $0.04 during the third quarter. GAAP net income was $0.21 per share. And comprehensive income, which includes all realized and unrealized gains and losses reflected on our balance sheet, was a gain of $16 million on the quarter compared to the third quarter's comprehensive income gain of $26 million. Looking at Anworth's portfolio, you'll see the total agency MBS investments were roughly unchanged in total from the prior quarter at approximately $2.4 billion. Similarly, non-agency MBS remained a little changed at $207 million. And residential loans held in securitization trusts as well as our non-QM loans, which are held for securitization, fell during the quarter due to prepayments. While our agency TBA position was a little changed quarter-over-quarter, the fact that this position was increased during the third quarter and held during the entire fourth quarter, increased the amount of TBA dollar roll income we earned and was the primary driver of our core earnings increase on the quarter. While the overall portfolio size was a little changed in the quarter, we did see shifts in the composition of our investment sectors.
Bistra Pashamova: Thank you, Joe. Agency MBS spreads tightened further in the fourth quarter, supported by ongoing strong base of Fed purchases and muted interest rate volatility. Prices were higher across the coupon stack, with particularly strong performance for production coupons, despite a 23 basis-point rise in the 10-year treasury yield. Specified pool performance was mixed with pay-ups weakening for lower coupons. As Joe mentioned, the size of our agency MBS portfolio, approximately $2.3 billion, was unchanged from the previous quarter, with our 30-year MBS allocation increasing to 70% of the portfolio. 15-year and 20-year securities combined were 8%, and adjustable rate MBS declined to 22%. As we mentioned on the last call, early in the quarter, we've used production coupon 30-year MBS as providing attractive risk-adjusted spreads, enhanced by significant roll financing advantage. And we capitalized on very attractive dollar roll carry by focusing our new investments in that sector, particularly 30-year TBAs in two coupons. As you can see, at quarter end, our TBA position was unchanged and was 31% of the portfolio. The average coupon of our 30-year fixed rate pools declined, reflecting the addition of new production relatively generic pools. Our higher coupon 30-year fixed rate investments remained comprised of specified pools, 85% of which have some prepayment mitigation characteristics. As we discussed on the last call, we anticipated portfolio prepayments to remain flat in the fourth quarter. Overall agency portfolio CPR was 40%, and the adjustable rate securities CPR was 35%. We expected some moderation in prepayment subsequently from the combined effect of winter seasonals, a burn out of our higher coupon fixed rate pools, resetting of coupons of the adjustable rate securities and new portfolio investments. And in the two months of the current quarter, portfolio prepayment speeds have declined consecutively to an average of 33% CPR for the overall portfolio and 26% CPR for the adjustable rate MBS. Regarding new portfolio investments and allocation, we did not use spreads at the start of the current quarter as providing enough compensation for extension risk and a further bearish steepening of the yield curve. We have trimmed our exposure to production coupon 30-year MBS by outright sales and have further reduced portfolio size by not reinvesting monthly portfolio paydown.
Joe McAdams: Thank you, Bistra. And now to discuss our residential mortgage credit investments, I turn the call over to Brett Roth.
Brett Roth: Thanks, Joe. During the fourth quarter, credit markets continued to benefit from improved liquidity. Spreads further tightened in over the course of the quarter. Overall, we have retraced a significant amount of the spread widening that we experienced during the first quarter. We are still not nearly back to the levels we were at, at our tightest. However, the market is continuing to function smoothly with trade activity continuing to increase and the demand for assets continuing to grow. During the quarter, our CUSIP portfolio's value increased due to the spread tightening in the market. Further, on the funding side, both haircuts and funding spreads improved. We continue to support portfolio leverage again at lower levels than we had previously with our current assets, cash and securities. The legacy portfolio over the quarter was approximately 12 CRR, and CDR remained in the same general range as last quarter, 2 CDR. New delinquencies this quarter continued what we saw last quarter, i.e., a return to similar levels experienced 30-day delinquencies running at approximately 3%. Since increasing in the post-COVID experience, we are seeing the 60-plus delinquency bucket holding steady at approximately 20%. There were no other additional sales nor were there -- no other additional sales during the quarter. However, we did opportunistically add a couple of new positions in our securitized NPL portfolio during the quarter. Last quarter, our portfolio was comprised of approximately 53% legacy MBS assets and 47% credit risk transfer assets. Currently, the balance is approximately 56% legacy MBS and 44% credit risk transfer assets. In our CRT portfolio, credit performance appears to have improved slightly from last quarter, and new delinquencies continue to decline. Voluntary prepays in this portfolio increased slightly from last quarter to approximately 20 VPR from the high teens last quarter. Approximately 84% of our CRT investments are focused on agency reperforming loans. Turning to our loan portfolios. We have been -- we continue to remain in close contact with our servicers in both loans -- in both of our loan portfolios. Looking at the residential loans held for investment portfolio. This is a portfolio of high-quality jumbo loans originated in 2014 and 2015. Over the quarter, we experienced increased delinquencies. However, in the instances where there have been liquidations, we continue to benefit from the increased value of the underlying properties and have not experienced losses. We continue to see high voluntary prepays in this portfolio with voluntary prepays over the quarter running at approximately 46 CRR.
Joe McAdams: Turning now to our portfolio financing. As was the case with our assets, our borrowings were roughly unchanged in the quarter with $1.5 billion in total repo borrowings, an average repo rate of 33 basis points and an average hedged rate after taking into account our interest rate swaps of 1.38%. Our leverage multiple remained at 3.4 times total capital at December 31st. And when implied TBA financing is considered, our effective leverage at year-end was 4.9 times total capital, down slightly from the prior quarter. Our interest rate swap positions declined in notional balance to $715 million as shorter swaps matured during the quarter. We still maintain a significant balance in swaps around or beyond a five-year maturity to protect book value from an increase in longer maturity interest rates, even if short-term rates stay low as we do expect in the coming quarters. On the quarter, our book value per share increased $0.09 from $3.04 at September 30th to $3.13 per common share. When taking into account the $0.05 dividend that was declared during the quarter, the total economic return on book value for common shareholders was 4.6% during the quarter, with the resulting 2020 economic loss finishing the year at a negative 27.2%.
Operator:
Joe McAdams: All right. Thank you, Jamie. Obviously, if anyone has any questions, listening to this call on a replay or the transcript, feel free to reach out to us. With that said, I'd like to thank everyone for participating in today's call, and have a great day. Thank you.
Operator: Ladies and gentlemen, that does conclude today's conference call. We do thank you for joining. You may now disconnect your lines.
No analyst estimates available
